INVESTMENT RESEARCH DARK HORSE- VIDHI SPECIALITY FOOD INGREDIENTS LTD. (Formerly known as "Vidhi Dyestuffs Manufacturing Limited")

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1 INVESTMENT RESEARCH Dated : 24 th March, 2017 ACCUMULATE Price ` 55 ACCUMULATE Div Yield 1.5% Tenure 2-3 Years Sensex Nifty Group/Index B / S&P BSE Small Cap Stock Details M.cap (` in cr) 276 Equity (` In cr) wk H/L ` 74.10/47.80 Face Value ` 1 NSE code VIDHIING BSE code Investment Rationale Assure to keep the growth momentum in coming years and strive best for bright future of the company. Company is working on concrete and rather aggressive capex plans that include enhancement of existing product lines, diversification into production of new products developed/ to be developed by in house R&D team along with backward integration for manufacturing of two major raw materials. Implementation of this capex plan will translate into Growth in sales along with healthy margin expansion in terms of EBIDTA. Bringing newer products into the production stream along with backward integration of existing products sooner than later thereby retaining competitive edge amongst the industry. COMPANY'S VISION GOING FORWARD Currently, 95.74% Of all colors manufactured by VDML are exported globally. Further, Vision 2020 is to be a 500+ manufacturing Turnover Company by end of 2020 with substantially better EBIDTA margins and then from there continue march towards newer and higher targets of growth in terms of sales and PAT. Key Valuation Ratios One of the leading manufacturers of food color in India. RONW 22% Well reputed for Consistency, Reliability, Quality and Timely Delivery among Global Market. P/E Export to more than 35 Countries. P/BV 4.2 The food colors of Vidhi are being distributed and consumed in over 80 countries across 6 EV/EBIDTA continents Its products are distributed to some of the largest Consumer / Healthcare / Food & Feed IN ` companies in the world. Key Financial Data EV (`in cr) BV (`in cr) NW(`in cr) Adj. EPS (TTM) 2.80 Share Holding Pattern % Promoter public % DARK HORSE- VIDHI SPECIALITY FOOD INGREDIENTS LTD. (Formerly known as "Vidhi Dyestuffs Manufacturing Limited") KEY HIGHLIGHTS Vidhi has build up on technical services, marketing capabilities and production in bulk quantities to face competition from domestic as well as global. In this way, Vidhi enjoys a position of one of the leader in food color manufacturing Industry. OUTLOOK With the government s Make in India initiative, the global manufacturing industry has been shifting its focus to the Indian markets. The population has grown nearly as large as that of China, with its consuming middle class accounting for about a third of its population. Indian food colors and chemical industry players have been focusing on sustainable development. The industry is expected to register a growth of 8-9% in the next decade. Primarily, being regarded as producer of food colors, Indian food colors industry has forged ahead to earn a global repute as a manufacturer of specialty and high value-added chemicals on the back of strong R&D. With significant labor cost advantages, rising demand in end-user segments, expanding exports fueled by improved export competitiveness, new market opportunities, infrastructure investments along with regulatory reforms and the federal government s fiscal incentives - the growth of the Indian chemical industry is expected to continue. VALUATION (` In Cr except per share) FY 18Est. Earnings Equity Share Capital FV No. of Equity Shares EPS Est. (FY2017) 3.83 Estimated P/E Ratio 23 Fair Value(Dis.@12%) 88 Corporate Governance Transparency Ratio's Year End Tax Rate % Receivable day Source: Google Div. Payout % Page 1

2 Quarterly & Nine Months Results Analysis RUDRA SHARES & 9MFY17 & Q3FY17 Standalone Results 9MFY17 Results The company posted a Net Profit of ` crores for the 9Month 2017 as compared to `11.2 crores for the previous quarter last year. However, Total Revenue of the company stood at ` crores as compared to ` crores in the previous year. EBITDA for 9MFY17 stood at ` Crores as against ` Crores during the previous quarter last year, delivering EBITDA Margins at 15.34% against 14.75% respectively. Q3 Results The company posted a Net Profit of ` 3.74 crores for the December Quarter, 2017 as compared to ` 4.99 crores for the previous quarter last year. However, Total Revenue of the company increased from ` crores to ` crores for the quarter, an increase of 12.50% on Y-O-Y basis. EBITDA for the quarter stood at ` 7.81 Crores as against ` 9.35 Crores during the previous quarter last year. EPS for the quarter is at ` 0.75 Graphical presentation Q3 FY & 9M FY 2017 Results: Standalone Results ` in crores Particulars Quarter Ended % change % change Nine Months Ended % change Q3 FY 17 Q2 FY 17 Q3 FY 16 Q-0-Q Y-0-Y 9M FY 17 9M FY 16 Y-0-Y Revenue % 12.50% % EBITDA % % % EBITDA % 14.11% 14.46% 19.01% % 14.75% - PBT % % % PBT% 11.06% 13.15% 15.51% % 11.57% 7.39% PAT % % % PAT % 6.76% 8.78% 10.14% % 7.57% 5.80% EPS % % % Note: EPS is not annualized Continent Wise Breakup in Sales FY Performance Financial year is another good year for the food colors and dyes industries. The demand in the overseas market is higher than the supply of the product and due to this gap of demand and supply, the margin of the profit has been increased. Further, Company s considerable area of its business is overseas market and to control over the fluctuation of the Foreign exchange, the Company has practice of booking the foreign exchange immediately on booking of order and not keeping the foreign exchange open applicable to both area i.e. Export and Import. Company retained its position as one of the eminent food color manufacturing Company in the manufacturing of food colors and preservative Industry. Total income of the Company decreased by 1.88% from ` Crores during the previous year to ` Crores during the year under review. However, the Company has achieved outstanding and fabulous net profit t of ` Crores for the financial year compared to ` Crores for the financial year EBIDTA stood at ` Crores for the financial year An operational EBIDTA has been increased from 14.76% for year ended FY15 to 16.82% for year ended FY16. Financial charges (Interest) of ` 4.68 Crores for the financial year compared to ` 4.72 Crores for the previous year. Depreciation and Amortization stood at ` 2.16 Crores for the compared to ` 1.63 Crores for the previous year. The EPS is ` 2.95 for the financial year compared to EPS of `2.49 for previous year. The Company has manufactured M. Tons of Food colors against M. Tons in the previous year. Though the year witnessed a slight decrease in the total turnover of the Company by 1.41% as compared to previous year, other income of the Company has significantly added to the higher profits of the Company. Thus, the overall performance of the Company has increased the Market Value of the Company. ` in Lakhs ` in Lakhs Page 2

3 Company's Comprehensive product range Synthetic water soluble colors: (European commission & JECFA Approved) Available in microfine powder, fine plating grade powder & in granular forms. Aluminium Lakes:( European commission & JECFA Approved) Food grade insoluble pigments available in microfine powder form. FD&C Colors:(U.S. FDA Approved) Available in microfine powder, fine plating grade powder & in granular forms. FD&C Lakes:(U.S. FDA Approved) Food grade insoluble pigments available in microfine powder form. D&C Colors :(U.S. FDA Approved) Available in microfine powder for drug & cosmetic applications. Blends: (European commission & JECFA Approved) Co-Blended Lakes & Co-Blended Granules: (European commission, JECFA & U.S. FDA Approved) To achieve custom blended shades. Natural colors: (European commission, JECFA & U.S. FDA Approved) Natural color formulations tailor made to suit any product applications. Strengths & Opportunities Threats, Risks and Concerns ] Proven chemical process and technologies ] Availability of skilled man power ] Rich market potential ] Infrastructural challenges ] Matured industry ] Cost of finance ] High degree of entrepreneurship ] Environmental concerns ] Some consolidated units are world class capacity plants ] Low per capita consumption ] Potential for technology up-gradation to provide value added products ] Lack of innovation ] Developed countries are looking at outsourcing dye production to developing countries, as production facilities shift base to Asian countries like India and China Company Overview VALUATION CONCLUSION Vidhi Dyestuffs Mfg. Ltd., is a leading manufacturer of Superior Synthetic Food Grade Colors. VDML provides customers superior color solutions in applications for various industries such as Food & Beverage, Confectionary, Pharmaceuticals, Feeds, Cosmetics, Confectionary, Dairy etc. Company's colors are being distributed and consumed in over 80 countries across 6 continents. Various products containing the colors are consumed by every human being right from the time they wake up in the morning in the form of coloured tooth paste and after shave lotion till they sleep at night, when they are hale and hearty in confectionary, beverages, jams, jellies etc to medicines when they fall sick. Further company's Vision 2020 is to be a 500+ manufacturing Turnover Company with substantially better EBIDTA margin, newer and higher targets of growth in terms of sales and PAT. Bringing newer products into the production stream along with backward integration of existing products thereby retaining competitive edge amongst the industry are the key points that attracts the company's share price. Hence we suggest to accumulate the stock at CMP for 2-3 Years of tenure. Page 3

4 Particulars Net Sales EBITDA Depreciation Op Income Misc.Inc (Exp.) Interest Exp EBT Taxes Net Inc(Reg) Extraord. Items Rep Net Inc EPS Adjusted EPS Quarterly Results (` in cr except per share) LTM (0.01) Income Statement and Estimates ( ` in Cr except per share) Particulars E 2018E 2019E Sales Other operating Inc Total Inc. from operations Operating EBITA Profit & Loss Total Inc. from operations TOTAL EXPENDITURE EBITDA Depreciation (1.73) (1.97) (1.63) (2.16) (2.55) (3.28) (4.29) Rep.profit before othrinc., fin.cost,tax & excp. Item Goodwill amortization Rep.profit before othrinc., fin.cost,tax & excp. Item OTHER INCOME Profit from ordinary act. Before Fin.Cost,TAX & Exp.Items Net financials Interest income Interest expenses (4.55) (5.34) (6.11) (5.63) (3.96) (3.74) (3.69) Net Financial Items (4.55) (5.34) (6.11) (5.63) (3.96) (3.74) (3.69) Reported Pre-tax profit Reported Tax charge (2.21) (3.15) (6.85) (7.81) (8.93) (10.32) (14.30) Reported Net profit Minorities P/L OF ASSOCIATE CO Reported Net profit after min. Intt Extra Ordinary income - - (0.32) Reported Net Income after extra ordinary items EPS and Dividend Dividend Paid (1.00) (2.00) (2.50) (4.00) (4.00) (4.51) (4.51) Retained earnings Reported EPS Adjusted Basic EPS DPS Number Of Shares Opening Balance Issued during the Year Closing Balance FV Wtd. Avg. no. of shares Note:- The figures shown in the brackets means NEGATIVE Page 4

5 BALANCE SHEET Particulars E 2018E 2019E Equity & Liabilities Shareholders' Fund Share Capital Reserves and Surplus Minority Interests Total Shareholders' Fund Non-Current Liabilities Long-term Borrowings Other Long term Liab Deferred Tax Liability Long term Provisions Total Non-Current Liab Current Liabilities Short term Borrowings Trade Payables other current liability Short term Provisions Total current Liabilities Total Equity & Liab Assets Non-Current Assets Fixed Assets Tangible fixed Assets Intangible FA Non-current Investments Long term L&A Other Non current Assets Deferred tax receiv Total Non-Current Assets Current Assets Current Investments Inventories Trade Receivables Cash & cash Equivalents Short Term L&A Other current Assets Total current Assets Total Assets Cash & cash equivalents Other int. bearing assets Interest-bearing debt Net interest-bearing debt Net gearing (%) % % 98.54% 73.43% 59.19% 52.48% 40.25% Investments Tangible assets Gross capex (0.80) (1.20) (16.11) (17.09) (20.02) (23.54) Sale of fixed assets Net capex (0.80) (1.20) (16.11) (17.09) (20.02) (23.54) Depreciation tangibles (1.73) (1.97) (1.63) (2.16) (2.55) (3.28) (4.29) Note:- The figures shown in the brackets means NEGATIVE. Page 5

6 CASH FLOW ANALYSIS Particulars E 2018E 2019E EBIT Depreciation Dep.(ex goodwill) Mov.in Inventories - (5.34) (12.02) (1.79) (3.50) (7.84) Mov. in Debtors - (4.14) (7.84) 6.99 (2.14) (1.00) (4.83) Mov. in Creditors (18.56) Other W.C Inc./dec. - (0.17) 2.39 (4.06) Change in W.C - (6.63) (2.95) (5.30) 2.35 (0.80) (0.71) Tax paid - (3.15) (6.85) (7.81) (8.93) (10.32) (14.30) Operating Cash Flow Net interest - (5.34) (6.11) (5.63) (3.96) (3.74) (3.69) Cash Earnings Gross CapEx - (0.80) (1.20) (16.11) (17.09) (20.02) (23.54) Sale of fixed assets Net CapEx - (0.80) (1.20) (16.11) (17.09) (20.02) (23.54) Free CF pre div (4.51) Dividend - (2.00) (2.50) (4.00) (4.00) (4.51) (4.51) Free CF post Dividend - (1.49) 7.39 (8.51) 0.25 (2.87) 2.08 Net acqui./disposals Net cash flow - (1.49) 7.39 (8.51) 0.25 (2.87) 2.08 RATIO ANALYSIS Particulars E 2018E 2019E Return on assets % 11.01% 11.62% 12.43% 12.67% 14.87% Return on equity % 31.38% 29.38% 26.81% 25.60% 28.48% ROCE % 52.13% 44.59% 36.72% 33.49% 35.89% EBIT Margin % 13.44% 15.26% 14.94% 14.95% 15.14% Pre tax margin % 10.20% 12.21% 12.92% 13.26% 13.88% Net Profit Margin % 6.74% 7.98% 8.37% 8.62% 9.02% Total asset turnover Fixed asset turnover Equity turnover Current Ratio Quick Ratio Cash Ratio Receivable Days Inventory Days Payable Days Conversion Cycle (Days) Financial Leverage Effect Debt to Capital Debt to Equity Note:- The figures shown in the brackets means NEGATIVE. Page 6

7 Disclosures & Disclaimers Disclosures : 1) Business Activity : Rudra Shares & Stock Brokers Limited is engaged in the business of providing broking services & distribution of various financial products. RUDRA is also registered as a Research Analyst under SEBI(Research Analyst) Regulations, SEBI Reg. No. INH ) Disciplinary History : There has been no instance of any Disciplinary action, penalty etc. levied/passed by any regulation/administrative agencies against RUDRA and its Directors. Pursuant to SEBI inspection of books and records of Rudra, as a Stock Broker, SEBI has not issued any Administrative warning to Rudra. 3) Terms & Conditions of issuance of Research Report: The Research report is issued to the registered clients. The Research Report is based on the facts, figures and information that are considered true, correct and reliable. The information is obtained from publicly available media or other sources believed to be reliable. The report is prepared solely for informational purpose and does not constitute an offer document or solicitation to buy or sell or subscribe for securities or other financial instruments for clients. 4) Disclosures with regard to ownership and material conflicts of interest : Sr. No. Disclosures Yes/No a) Rudra or its research analysts, or his/her relative or associate has any direct or indirect No financial interest in the subject company. b) Rudra or its research analysts, or his/her relative or associate has any other material No conflict of interest at time of publication of the research report. c) Rudra or its research analysts, or his/her relative or associates have actual/beneficial No ownership of one per cent or more securities of the subject company. 5) Disclosures with regard to receipt of compensation : Sr. No. Disclosures Yes/No a) Rudra or its associates have received any compensation from the subject company in the No past twelve months. b) Rudra or its associates have managed or co-managed public offering of securities for the No subject in the past twelve months. c) Rudra or its associates have received any compensation or other benefits from the subject No company or third party in connection with the research report. 6) Other Disclosures: Sr. No. Disclosures Yes/No a) The research analyst has served as an officer,director,employee of the subject company. No b) Rudra or its research analyst has been engaged in market making activity for the subject No company. c) Rudra or its or associates have received any compensation from the subject company in the No past twelve months. Page 7

8 Disclaimers: This Research Report (hereinafter called report) has been prepared and presented by RUDRA SHARES & STOCK BROKERS LIMITED, which does not constitute any offer or advice to sell or does solicitation to buy any securities. The information presented in this report, are for the intended recipients only. Further, the intended recipients are advised to exercise restraint in placing any dependence on this report, as the sender, Rudra Shares & Stock Brokers Limited, neither guarantees the accuracy of any information contained herein nor assumes any responsibility in relation to losses arising from the errors of fact, opinion or the dependence placed on the same. Despite the information in this document has been previewed on the basis of publicly available information, internal data, personal views of the research analyst(s)and other reliable sources, believed to be true, we do not represent it as accurate, complete or exhaustive. It should not be relied on as such, as this document is for general guidance only. Besides this, the research analyst(s) are bound by stringent internal regulations and legal and statutory requirements of the Securities and Exchange Board of India( SEBI) and the analysts' compensation was, is, or will be not directly or indirectly related with the other companies and/or entities of Rudra Shares & Stock Brokers Ltd and have no bearing whatsoever on any recommendation, that they have given in the research report. Rudra Shares & Stock Brokers Ltd or any of its affiliates/group companies shall not be in any way responsible for any such loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Rudra Shares & Stock Brokers Ltd has not independently verified all the information, which has been obtained by the company for analysis purpose, from publicly available media or other sources believed to be reliable. Accordingly, we neither testify nor make any representation or warranty, express or implied, of the accuracy, contents or data contained within this document. Rudra Share & Stock Brokers Ltd and its affiliates are engaged in investment advisory, stock broking, retail & HNI and other financial services. Details of affiliates are available on our website i.e.. We hereby declare, that the information herein may change any time due to the volatile market conditions, therefore, it is advised to use own discretion and judgment while entering into any transactions, whatsoever. Individuals employed as research analyst by Rudra Shares & Stock Brokers Ltd or their associates are not allowed to deal or trade in securities, within thirty days before and five days after the publication of a research report as prescribed under SEBI Research Analyst Regulations. Subject to the restrictions mentioned in above paragraph, we and our affiliates, officers, directors, employees and their relative may: (a) from time to time, have long or short positions acting as a principal in, and buy or sell the securities or derivatives thereof, of Company mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or profits. RUDRA SHARES & Phone: Page 8